Wednesday, April 18, 2012

Contingency Planning

Developing a Good 'Plan B'

Fires, floods, tornadoes – these are the things we often connect with contingency planning. But what if your main supplier suddenly goes bankrupt? Or, what if your entire sales force gets sick with food poisoning at your annual sales conference? Or, your payroll clerk simply calls in sick on payroll day? These things can all cause confusion and disorder if you haven't prepared for them properly. Contingency planning is a key part of this preparation.

As you see, contingency planning is not just about major disasters. On a smaller scale, it's about preparing for events such as the loss of data, people, customers, and suppliers, and other disruptive unknowns. That's why it's important to make contingency planning a normal part of your everyday business operations.

Risk Assessment

The need for contingency planning emerges from a thorough analysis of the risks that your organization faces. It's also useful in thinking about new and ongoing projects: what happens when 'Plan A' doesn't go as expected? Sometimes Plan A simply means 'business as usual.' Other times, with more sophisticated risk management plans, Plan A is your first response to deal with an identified risk – and when Plan A doesn't work, you use your contingency plan.

Use these principles in your risk assessment process:

  • Address all business-critical operations – No matter where your contingency planning starts, a good plan identifies critical business functions, and it outlines a way to minimize losses.
  • Identify risks – The first part of an effective risk analysis is to identify the various risks that your business may face. What has the potential to significantly disrupt or harm your project or business operations? The end result of a risk analysis is usually a huge list of potential threats. If you try to produce a contingency plan for each, you may be overwhelmed. This is why you must prioritize.
  • Prioritizing risks – One of the greatest challenges of contingency planning is making sure you don't plan too much. You need a careful balance between overpreparation for something that may never happen, and adequate preparation so that you can respond quickly and effectively to a crisis situation when necessary.
  • Risk Impact/Probability Charts help you find this balance. With these, you analyze the impact of each risk, and you assign a likelihood of it occurring. Then it's easier to determine which risks require the expense and effort of risk mitigation. Business processes that are essential to long-term survival – like maintaining cash flow, staff support, and market share – are typically at the top of the list.
  • Note that contingency planning isn't the only action that emerges as a result of risk analysis – you can manage risk by using existing assets more effectively or by investing in new resources or services that help you manage it (such as insurance). Also, if a risk is particularly unlikely to materialize, you may decide to do nothing about it, and manage around it if the situation arises.
Contingency Planning Challenges

You should be aware of a few common obstacles as you begin your contingency planning process:

  • People are often poorly motivated to develop a strong 'Plan B' because they have too much of an emotional investment in the 'Plan A' they want to deliver. Stress that Plan B should be properly thought-through.
  • There's usually a low probability of a crisis occurring, so people often don't feel a sense of urgency to create a contingency plan, meaning that it gets stuck at the bottom of their To Do Lists. Unfortunately, this may mean that contingency planning ends up as a task that never gets done.
  • Organizational politics can interfere with prioritizing risk, because many people may want to be seen as an essential part of recovery efforts. If you include all key business managers in the risk assessment and prioritization process, this may help you reach agreement.
Developing the Plan

Remember these guidelines when it's time to prepare your contingency plan:

  • Your main goal is to maintain business operations – Look closely at what you need to do to deliver a minimum level of service and functionality.
  • Define time periods – What must be done during the first hour of the plan being implemented? The first day? The first week? If you break down the plan, you're less likely to leave out important details.
  • Identify the trigger – What specifically will cause you to implement the contingency plan? Decide which actions you'll take, and when. Determine who is in charge at each stage and what type of reporting process they must follow.
  • Keep the plan simple – You don't know who will read and implement the plan when it's needed, so use clear and plain language.
  • Consider related resource restrictions – Will your organization be able to function the same way if you have to implement Plan B, or will Plan B necessarily reduce capabilities?
  • Identify everyone's needs – Have people throughout the company identify what they must have, at a minimum, to continue operations.
  • Define 'success' – What will you need to do to return to 'business as usual'?
  • Include contingency plans in standard operating procedures – Make sure you provide initial training on the plan, and keep everyone up-to-date on changes.
  • Manage your risks – Look for opportunities to reduce risk, wherever possible. This may help you reduce, or even eliminate, the need for full contingency plans in certain areas.
  • Identify operational inefficiencies – Provide a standard to document your planning process, and find opportunities for performance improvement.
Maintaining the Plan

After you prepare the contingency plan, you need to do several things to keep it practical and relevant – don't just create a document and file it away. As your business changes, you'll need to review and update these plans accordingly.

Here are some key steps in the contingency plan maintenance process:

  • Communicate the plan to everyone in the organization.
  • Inform people of their roles and responsibilities related to the plan.
  • Provide necessary training for people to fulfill these roles and responsibilities.
  • Conduct disaster drills where practical.
  • Assess the results of training and drills, and make any necessary changes.
  • Review the plan on a regular basis, especially if there are relevant technological, operational, and personnel changes.
  • Distribute revised plans throughout the company, and make sure the old plan is discarded.
  • Audit the plan periodically:
    • Reassess the risks to the business.
    • Analyze efforts to control risk by comparing actual performance to the performance level described in the contingency plan.
    • Recommend and make changes, if necessary.
Key Points

Contingency planning is ignored in many companies. Day-to-day operations are demanding, and the probability of a significant business disruption is small, so it's hard to make time to prepare a good plan. However, if you're proactive in the short term, you'll help ensure a quicker and more effective recovery from an operational setback in the long term, and you may save your organization from failure in the event that risks materialize.

A contingency planning process also helps you gain significant insight into the risks your organization faces. This enables you to develop an effective planning strategy that will immediately add value to the business. Contingency planning requires an investment of time and resources, but if you fail to do it – or if you do it poorly – the costs could be significant if a disaster happens.

Thanks to Mind Tools / Mind Tools Ltd


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